Yesterday the dots said hikes. Today the deal said peace. The S&P fell 1.21% on Wednesday when nine of eighteen Fed officials projected rate increases. The S&P gained 1.15% on Thursday when the 14-point Iran MOU turned out to include a $300 billion reconstruction plan, the removal of all U.S. sanctions, and a 60-day window to finalize the deal. The market absorbed the most hawkish dot plot in two years and bounced back in a single session — because the deal changes the math. Oil at $76. The Strait reopening. If the inflation was caused by the war, and the war is ending, the dots don't matter. The data will change them. Tomorrow the signing ceremony takes place in Switzerland. Markets are closed for Juneteenth. By the time you and I are back here Monday afternoon, the ink will be dry — or it won't. This is the last trading day before we find out.
The Close
Bounce day. The S&P gained 1.15%. The Nasdaq rose 1.5%. The Dow added 0.80%. After Wednesday's post-FOMC selloff — the worst Fed day under a new chair since 1994 — the market clawed back almost all of it in one session. The catalyst wasn't the Fed walking anything back. It was the deal getting bigger.
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| S&P 500 | ~7,505 | +1.15% | ||
| WTI Crude | $76.27 | deal priced in | ||
| Russell 2000 | only index red | −0.72% | ||
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| Information Technology |
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+2.0% | ||
| Communication Services |
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+1.5% | ||
| Consumer Discretionary |
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+1.2% | ||
| Financials |
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+1.0% | ||
| Industrials |
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+0.8% | ||
| Health Care |
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+0.6% | ||
| Materials |
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+0.4% | ||
| Utilities |
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+0.2% | ||
| Consumer Staples |
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+0.1% | ||
| Real Estate |
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−0.3% | ||
| Energy |
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−0.8% | ||
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The details of the Iran MOU came out overnight and through the morning. Fourteen points. A 60-day negotiation period to reach a final agreement. A $300 billion reconstruction plan for Iran. The removal of "all types" of U.S. sanctions. The Strait of Hormuz reopening. Trump defended the deal at the G7, calling critics "jealous, bad people or stupid." Oil fell below $77 — WTI at $76.27, Brent at $79.24.
Intel rose on news of a new chip. SpaceX was up 3% in premarket trading to $208, continuing to find buyers after Tuesday's Cursor acquisition. The broader chip complex rallied with the Nasdaq. But the Russell 2000 fell 0.72% — the only major index in the red. Small companies borrow at rates that move with the Fed. When the dots say hikes, small caps pay first.
The signing ceremony is tomorrow in Geneva. Markets are closed for Juneteenth. The last trade before a long weekend with an unsigned deal on the table.
What The Market Is Pricing In
Stocks don't price today. They price the next six to twelve months. And what the market priced today — by bouncing 1.15% the day after a hawkish dot plot — is that the deal matters more than the dots.
Here's the logic. The dots say the median Fed official expects rates at 3.8% by year-end — a quarter point higher than today. Nine of eighteen want to hike. Six want to hike more than once. That's the most hawkish dot plot since the hiking cycle started in 2022. But the dots are based on the data the Fed has in hand right now: CPI at 4.2%, PPI at 6.5%, retail sales at 0.9%. All of that data was collected while oil was above $90 and the Strait was closed.
If the deal holds and oil stays at $76 — down 20% from its April peak — the June and July inflation readings will come in dramatically lower. When oil drops, gas drops. When gas drops, shipping drops. When shipping drops, the cost of everything that gets moved by truck or plane drops. CPI could be back below 3.5% by August. And if that happens, the nine dots that want hikes become nine dots that don't. The dots are a snapshot. They change when the data changes.
The S&P bounced 1.15% the day after the worst new-chair Fed day since 1994, and the market is telling you that if the Iran deal holds and oil stays below $80, the hawkish dot plot from yesterday becomes irrelevant by the September meeting — because the data that produced those dots is about to change. That's the bet. Deal holds, oil falls, inflation fades, dots shift back to neutral. The entire second half of 2026 hinges on whether tomorrow's signing ceremony in Geneva produces a real deal or another false start.
But the Russell 2000 fell while everything else rallied. That's worth watching. Small companies are the most sensitive to interest rates because they borrow at short-term rates that track the Fed. When the dots say hikes, small caps feel it first. On Wall Street they call this a rate-sensitive divergence — when the big stocks rally on the headline but the small stocks sell off because the bond market is still pricing the Fed's threat. Today the equity market priced the deal. The bond market priced the dots. Eventually one of them will be wrong. If the deal holds, the equity market wins and small caps catch up. If the deal fails, the bond market wins and everything comes back down.
I saw this tug-of-war in November 2023. The October CPI came in below expectations and the S&P rallied 2% in a day — even though the Fed was still talking tough. The market bet that the inflation trajectory would force the Fed to cut. It was right. The cuts started ten months later. Today's setup is the same: the dots say hikes, but the deal says inflation is peaking. The market is betting the data will change the Fed's mind. It usually does.
What's Next
Three things I'm watching over the long weekend:
01 — Iran signing ceremony Friday June 19 in Geneva
Markets are closed. The ceremony is not. If the deal is signed and the terms hold — Strait reopens, sanctions lifted, 60-day negotiation begins — Monday opens with oil below $70 and the S&P testing 7,600. If any of the 14 points fall apart — nuclear inspections, Israel's objections, the mine-clearing timeline — Monday opens with oil back above $85 and the Wednesday selloff resumes. The $300 billion reconstruction number is new. That's a commitment that makes the deal harder to walk away from, for both sides.
02 — Bond market Monday morning
The 2-year yield jumped 11 basis points on Wednesday and barely moved Thursday. If it drops 5-10 basis points Monday on the signed deal, the rate-hike trade is fading and the dots are already stale. If it holds above 4.15% or rises, the bond market is telling you the dots matter regardless of the deal — and that means the hike is still live.
03 — Nasdaq quarterly rebalance June 22
Next Sunday the Nasdaq announces changes for its June quarterly rebalance. SpaceX, Rocket Lab, and CoreWeave are among the names expected to be added. The rebalance forces index funds to buy the additions and sell the removals. If SpaceX gets added — and with a $2.8 trillion market cap, the weight would be significant — the buying pressure from passive funds could push the stock higher even from these levels. Watch Sunday night's announcement.
The market bounced. The deal beat the dots. Oil is at $76. The signing is tomorrow. And by Monday we'll know whether the second half of 2026 starts with the peace dividend — or whether the dots were right all along.
Markets are closed tomorrow for Juneteenth. I'll be back Monday after the close.
